India Opens Doors For Wal-Mart and `Untouchables'

The most hotly debated issue in India in 2012 was finally resolved the first week of December, when the coalition government's decision to open up the Indian retail sector to foreign direct investment was put to a vote in both houses of parliament and went through.

The vote was something of an anomaly. The government's verdict on foreign investment in September, though hotly opposed by many political parties (including some of the very coalition that makes up the government), traders' guilds and periodicals, was an executive decision not ordinarily requiring a vote in parliament, as draft bills do. But persistent hold-ups over the FDI issue meant that something had to be done to resolve the logjam on legislative activity. In the build-up to the vote forced by the opposition, the managers of the Congress Party -- including Prime Minister Manmohan Singh, who in September made a rare address to the nation explaining the need for foreign investment -- worked overtime to bring around the skeptics in the coalition's own ranks.

The final victory in parliament -- one that allowed Singh to declare, “The FDI policy that we have put in place has the approval of this House” -- was a messy one, with members of two opposing parties persuaded by the government to walk out so that the strength of the house was reduced to a number such that the opposition could not win the vote. It reflected how divided India is over foreign investment, with the policy's most vocal proponents promising increased prosperity for all Indians in the long-term, and its opponents raising the specter of Wal-Mart Stores Inc. taking over Indian retail trade and "foreign financial and corporate interests" taking over Indian economic policy.

The reform is one that will affect the lives and livelihoods of the vast majority of Indian people. It has direct relevance to the needs and problems of consumers, farmers, traders and retailers -- India has millions of family-run kirana shops, or grocery stores -- and touches not just business structures, employment opportunities and urban-rural linkages but also, more indirectly, matters like gender, caste and selfhood. Each state government in India will be allowed to decide whether to open its doors to FDI or not.

Many of the debates about the matter came in September. But in the three months since the government initially made its decision, many other voices have provided useful opinions and data on the subject. Writing recently on the New York Times' blog India Ink, Neha Thirani and Hari Kumar helpfully fact-checked some of the claims and counter-claims made in the debates over FDI, such as those over the "Wal-Mart Effect":

Ashwani Kumar, Minister of Law: “Walmart went to China 20 years ago, it amounts to 5 percent of the market in China.”

Verdict: Not far from the truth, according to a McKinsey report on hypermarkets in China published in May. It says: “Right now, China’s RT Mart is the largest hypermarket chain in China, with a market share of 10.8%; France’s Carrefour is second (8.9%) and Wal-Mart third (6.3%) Looking ahead to 2020, it’s not obvious who is going to lead the pack. Foreign multinationals in China are thoroughly localized; domestic players are thoroughly globalized. And many players are experimenting with new formats, both on- and off-line.”

Meanwhile, in "FDI: Just The Facts Please," Jacob John investigated the truth of different claims made about the wastage of agricultural produce in India today -- one of the reasons advanced for allowing the multinationals, with their booster doses of capital, into the retail sector. Considering the question of small traders being wiped out by big chains, he wrote:

There are those who suggest that FDI in retail is going to completely destroy the livelihoods of people dependent on the sector. The reality is that some livelihoods will certainly be destroyed. However, it is unlikely to make the kind of impact that many people claim it will. The local vendor is certainly at risk, and many of them will disappear. These will be replaced by more jobs for checkout clerks and shelf stockers in super markets. The nature of these livelihoods will change with the entrepreneurial local vendor being replaced by jobs that are paid by the hour or by the day. Whether this is necessarily better or worse depends on one's views regarding the kind of employment that people would prefer to have.

And as one of a triumvirate of hostile critics of the decision on FDI on the website Pragoti, the left-wing economist Prabhat Patnaik declared that the government had truckled to the power of the international capitalist system:

This assault on the people is sought to be justified in the name of growth. Capital has to be appeased by squeezing the people, for only then will it invest: only then will its “animal spirits” revive, only then will global finance flow into the country, only then will the Sensex start climbing up, all of which will boost growth. Even if this were true, which it is not, what good is this growth for the people? The years of high growth were accompanied by declining per capita food absorption and increasing absolute poverty. The assault on the people in other words is not just something that is “necessary” for kick-starting growth. A permanent and increasing assault on the people is a “necessary” condition for sustaining such growth. Any flagging in this assault, or even a non-intensification of it, dampens the capitalists’ “animal spirits” and brings down growth. Like a drug-addict who must have higher and higher doses, capitalists cannot do without a steady increase in the assault on the people, which alone can keep up their “animal spirits”.

Patnaik's Marxist critique of the decision is based on a view of society as a set of classes, but one of the realities of Indian society is that it is also a grid of castes. Since some of the lowest in the caste structure -- Dalits, or the untouchables of the old structure of society that Indian democracy now seeks, often unsuccessfully, to dismantle -- are also among the poorest people in India, one would think that their livelihoods would be as much under threat from the hegemony of international capital as the poor from higher castes. But in a revealing piece in the Times of India, two Dalit intellectuals insisted that the decision on foreign direct investment was a brave and welcome one; it would open up a new world of employment and indeed entrepreneurship for Dalits, since the current Indian trading system is also caste-based. Chandra Bhan Prasad and Milind Kamble wrote that the entry of foreign companies into Indian business would produce a more caste-neutral and inclusive society:

A couple of months ago, the UPA government cleared Foreign Direct Investment (FDI) in retail. It is a politically risky step. But for once, Prime Minister Manmohan Singh showed both spine and spunk biting the bullet. Since then, both Left parties and the BJP have expressed serious reservations over the decision. The general view is that it will affect the lakhs of small, indigenous kirana stores spread across the country. Interestingly, nobody has spoken about the FDI effect on the fledgling class of dalit entrepreneurs in India. ...

In a study on dalit enterprise, led by Devesh Kapur of the Centre for the Advanced Study of India (CASI), University of Pennsylvania, most dalit entrepreneurs surveyed were first-timers who had started their business after 1991 when the process of liberalisation began. The DICCI [Dalit Indian Chambers of Commerce and Industry] has about 3,000 members nationwide and most of them are into caste-neutral businesses. Both the CASI study and DICCI experience agree: dalits are most likely to succeed in occupations that are new and caste-neutral in origins. ...

Dalits don't succeed in traditional set-ups. They don't succeed in localised set-ups too. Caste is both traditional and local. The mandi system, too, is both traditional and local. FDI in retail, with foreign players, will usher in a new system of retailing. This new system will throw up opportunities to new players.

But as the dust on the outside investment debate settles, it's unlikely that the government's victory in parliament will mean that multinational companies are going to come rushing into India. As the economist Ashok Mitra pointed out in the Telegraph, they're more likely to wait and watch until the next general elections in the first half of 2014, especially since the main opposition party in parliament, the once economically-liberal Bharatiya Janata Party, has suggested that it will reverse the decision should it come into power. But for now, India's most consequential debate about economics in 2012 has been resolved in favor of globalization.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View. Follow him on Twitter @Hashestweets. The opinions expressed are his own.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.